case law update

Supreme Court Finds That FEHBA Preempts State Law Barring Subrogation and Reimbursement

Today, the Supreme Court held that contractual subrogation and reimbursement prescriptions plainly relate to “payments with respect to benefits” under the Federal Employees Health Benefits Act of 1959 (FEHBA) and preempt state laws barring subrogation and reimbursement.

FEHBA authorizes the Office of Personnel Management (OPM) to contract with private carriers for federal employees’ health insurance. It contains a provision expressly preempting state law under § 8902(m)(1). It provides that the “terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law … which relates to health insurance or plans.”

Jodie Nevils is a former federal employee who enrolled in and was insured under a FEHBA plan offered by Coventry Health Care of Missouri. Nevils was injured in an automobile accident and Coventry paid his medical expenses that resulted from the automobile accident. Nevils sued the driver who caused his injuries and recovered a settlement award.

After Nevils received his settlement award, Coventry asserted a lien for $6,592.24 against part of the settlement proceeds to cover the medical bills it paid. Nevils paid the $6,592.24 lien owed to Coventry and subsequently filed a class action against Coventry in a Missouri state court.

Nevils alleged that Coventry obtained reimbursement of the lien in violation of Missouri law that does not permit subrogation or reimbursement. Coventry countered that § 8902(m)(1) of FEHBA applies notwithstanding state law. The trial court granted summary judgment in Coventry’s favor.

Nevils appealed to the Missouri Supreme Court, which reversed the trial court’s judgment. The Missouri Supreme Court found that the “presumption against preemption” concludes that the federal statute’s preemptive scope excluded subrogation and reimbursement. Coventry then sought the Supreme Court’s review.

While Coventry’s petition was pending, OPM finalized a rule governing subrogation and reimbursement. FEHBA assigns to OPM broad administrative and rulemaking authority over the program. Because OPM’s contracts with private carriers have long included provisions requiring those carriers to seek subrogation and reimbursement, OPM has issued detailed regulations governing subrogation and reimbursement clauses in FEHBA contracts.

The OPM rule enacted confirmed that “[a] carrier’s rights and responsibilities pertaining to subrogation and reimbursement under any [FEHBA] contract relate to the nature, provision, and extent of coverage or benefits (including payments with respect to benefits)” within the meaning of § 8902(m)(1). The Supreme Court granted certiorari, vacated the Missouri Supreme Court’s judgment, and remanded for further consideration in light of OPM’s recently adopted rule.

On remand, the Missouri Supreme Court adhered to its earlier decision. The court maintained that OPM’s rule “does not overcome the presumption against preemption and demonstrate Congress’ clear and manifest intent to preempt state law.” The Supreme Court then granted certiorari to resolve conflicting interpretations of § 8902(m)(1).

The parties only disputed one of the two preconditions of federal preemption under § 8902(m)(1). They both agreed that Missouri’s law prohibiting subrogation and reimbursement “relates to health insurance or plans.” However, they disagreed that that the subrogation and reimbursement requirements in OPM’s contract with Coventry “relate to the nature, provision, or extent of coverage or benefits,” “including payments with respect to benefits.”

Coventry, who was joined by the United States as amicus curiae, contended OPM’s 2015 rule concludes that insurance-contract terms providing for subrogation and reimbursement fall within § 8902(m)(1)’s preemptive scope. To the contrary, Nevils argued that § 8902(m)(1) does not preempt state antisubrogation and antireimbursement laws in light of the presumption against preemption. Given that presumption, Nevils concluded that OPM’s rule is not entitled to deference.

The Supreme Court found that the reading advanced by Coventry and the United States best aligned with § 8902(m)(1)’s text, context, and purpose. The Supreme Court stated that contractual provisions for subrogation and reimbursement relate to “payments with respect to benefits” because subrogation and reimbursement rights yield such payments. The carrier’s delivery of benefits triggers the right to payment. As such, § 8902(m)(1) overrides state law barring subrogation and reimbursement.

Still, Nevils contended that if § 8902(m)(1) covers subrogation and reimbursement clauses in OPM contracts, then the statute itself would violate the Supremacy Clause by assigning preemptive effect to the terms of a contract, not the laws of the United States. The Court disagreed, concluding that the statute, not a contract, strips state law of its force. Without the FEHBA preemption provision, there would be no preemption of state insurance law. The statute ensures that the FEHBA contract terms are uniformly enforceable nationwide. The Court noted other federal statutes that preempt state law and leave the context-specific scope of preemption to contractual terms. Specifically, the Court cited the Employee Retirement Income Security Act of 1974 (ERISA) and the Federal Arbitration Act (FAA).

Nevils attempted to distinguish these other statutes by highlighting § 8902(m)(1)’s textual feature – that the provision states that the “terms of any contract” between OPM and a carrier “shall supersede and preempt” certain state or local laws. Nevils asserted that this formulation violates the Supremacy Clause’s mandate that only the “Laws of the United States” may reign supreme over state law. The Court found that even though Congress’s formulation here might differ from the phrasing of other statutes, § 8902(m)(1) manifests the same intent to preempt state law. Thus, the Supreme Court held that the regime Congress enacted is compatible with the Supremacy Clause.

The Supreme Court reversed the judgment of the Supreme Court of Missouri and remanded the case for further proceedings.

Read the full case: Coventry Health Care of Missouri, Inc. v. Nevils


This case law update was written by Michael J. Sgarlat, associate attorney, Shaw Bransford & Roth, PC.

For thirty years, Shaw Bransford & Roth P.C. has provided superior representation on a wide range of federal employment law issues, from representing federal employees nationwide in administrative investigations, disciplinary and performance actions, and Bivens lawsuits, to handling security clearance adjudications and employment discrimination cases.

Posted in Case Law Update

Tags: Supreme Court, FEHB Program, Federal Employees Health Benefits


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